SPRINGFIELD, Ill.–(BUSINESS WIRE)–Horace Mann Educators Corporation (NYSE:HMN) today reported financial results for the three months ended June 30, 2022:

“Our capital generating capacity is strong, and we remain committed to driving shareholder value”

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“At the core of our company is a dedication to and respect for the education profession, and we remain more committed to that mission than ever,” said Horace Mann President and CEO Marita Zuraitis. “In the second quarter, our policyholders were affected by a number of severe weather events, and our claims team worked tirelessly to fulfill our promise to be there when our customers need us.

“We are seeing steady progress in our ability to engage with educators,” Zuraitis continued. “As the more severe effects of the pandemic are receding, educators are finding they have more time to devote to planning for their future, and improving school access continues to expand our options for virtual and in-person interactions. When educators return to classrooms later this month, we will be there to help them meet new challenges and prepare for a lifetime of financial success. Our teams will be working with school districts to provide financial workshops on topics like Student Loan Solutions and retirement readiness, enrolling new participants in benefit programs, and having individual discussions with educators about how to best protect what they have today and prepare for a successful tomorrow.

“Reflecting final second-quarter results, we now expect full-year 2022 core EPS between $2.15 and $2.35 due to the significant level of catastrophe losses, effects of equity market declines and inflation,” Zuraitis said. “While we are disappointed that this confluence of external events has temporarily interrupted our progress toward our long-term objectives, we believe our response is appropriate, including additional rate action as needed. We remain confident in our strategy to achieve a larger share of the education market. As we look to 2023, we expect return on equity will be in the high-single digits as we resume our trajectory toward sustainable double-digit ROEs.

“Our capital generating capacity is strong, and we remain committed to driving shareholder value,” Zuraitis concluded. “While deploying capital for growth is a key priority, we continue to focus on providing an attractive shareholder return through both cash dividends and share repurchase. Through the end of July, we used $24 million to repurchase 670,816 shares this year at an average price of $35.82, actively utilizing our recent $50 million share repurchase authorization.”

Operating Segment Results

Beginning with first quarter 2022, Horace Mann is reporting financial results in three operating segments: (1) Property & Casualty, (2) Life & Retirement, and (3) Supplemental & Group Benefits. The retail business, consisting of the Property & Casualty and Life & Retirement segments, provides insurance and financial services to individual educators through agency and direct channels. The Supplemental & Group Benefits segment provides voluntary and employer-sponsored benefits through school district employers. These worksite offerings help school districts attract and retain staff. This segment includes the results of Madison National Life Insurance Company, Inc. (Madison National) that was acquired effective January 1, 2022.

Property & Casualty segment results reflect higher catastrophe losses and impact of inflation
(All comparisons vs. same period in 2021, unless noted otherwise)

The Property & Casualty insurance segment primarily markets private passenger auto insurance and residential home insurance. Horace Mann offers standard auto coverages, including liability, collision and comprehensive. Property coverage includes both homeowners and renters policies. For both auto and property coverage, Horace Mann offers educators a discounted rate and the Educator Advantage^® package of features. The Property & Casualty segment represented 51% of 2021 total revenues and contributed $57.0 million to 2021 core earnings.

The Property & Casualty segment core loss primarily reflected the previously announced catastrophe losses as well as the impact of inflation and other factors on auto results, which resulted in a higher segment combined ratio. Segment net investment income was $7.7 million, reflecting limited partnership fund returns impacted by equity market declines, down from $21.7 million in last year’s second quarter, when outsized returns in the limited partnership fund portfolio benefited this segment.

Catastrophe losses were $45.7 million from 22 severe thunderstorm, wind and hail events concentrated in Midwest and Plains states. The level of second-quarter catastrophe losses was well above the company’s 10-year historical average of $26 million. Property delivered a strong underlying loss ratio of 44.7% on lower non-catastrophe fire losses. Property prior-accident year reserve releases lowered the property combined ratio by 11.4%.

The auto underlying loss ratio increased 8.9 points due to the impact of inflation and other loss cost factors, including the industry trends toward more severe accidents and increased utilization of medical treatments. The company continues to implement rate and other underwriting changes that address these trends. In addition, as previously announced, the auto combined ratio reflected auto prior-accident year reserve strengthening to address pandemic-related systemic delays that are affecting the settlement of claims from recent accident years that remain open.

As expected, Property & Casualty net premiums written were slightly above last year’s second quarter. Property average net premiums were up about 8% as inflation adjustments to coverage values began to take effect. Planned rate changes over the next 12 to 18 months will reflect increased weather activity. We expect the overall impact of rate and inflation factors on average premiums rising to the mid-teens over the next 12 to 18 months.

Auto average net premiums were up about 2% as pandemic-related mileage changes have stabilized. The auto rate plan for the remainder of 2022 and throughout 2023 reflects rate increases in the high-single to low double-digit range in states representing almost 80% of our premiums.

Life & Retirement segment core earnings up 5% on strong net investment income
(All comparisons vs. same period in 2021, unless noted otherwise)

The Life & Retirement segment markets 403(b) tax-qualified fixed, fixed indexed and variable annuities; the Horace Mann Retirement Advantage^® open architecture platform for 403(b)(7) and other defined contribution plans; and other retirement products to educators as well as traditional term and whole life insurance products. Horace Mann is one of the largest participants in the K-12 educator portion of the 403(b) tax-qualified annuity market, measured by 403(b) net premiums written on a statutory accounting basis. The Life & Retirement segment represented 37% of 2021 total revenues and contributed $68.4 million to 2021 core earnings.

Life & Retirement segment core earnings were up 4.8% with total benefits and expenses largely unchanged. Adjusted core earnings, which excludes DAC unlocking, were up 24.4% with segment net investment income up 8.2%. DAC unlocking for the second quarter was driven primarily by the impact of the equity market decline.

For the Retirement business, net annuity contract deposits were $104.2 million, below last year’s strong second quarter. Educators continue to begin their relationship with Horace Mann through 403(b) retirement savings products, including the company’s attractive annuity products, which provide encouraging cross-sell opportunities. Total cash value persistency remained strong at 94.1%. The net interest spread was 303 points, up from a year ago, reflecting strong investment returns.

Horace Mann currently has $4.9 billion in annuity assets under management, including $2.2 billion of fixed annuities, $2.2 billion of variable annuities and $0.5 billion of fixed indexed annuities. Assets under administration, which includes Retirement Advantage and other advisory and recordkeeping assets, was down from a year ago largely due to the effect of equity market performance on assets under management.

Life annualized sales were slightly below last year, with persistency for life products of 96.2% remaining in line with prior periods.

Supplemental & Group Benefits segment sales up over 2021
(All comparisons vs. same period in 2021, unless noted otherwise)

The Supplemental & Group Benefits segment markets employer-sponsored group worksite solutions for districts and other public employers, as well as voluntary products typically distributed through the worksite channel. The worksite business provides group term life, disability and specialty health insurance along with voluntary supplemental products including cancer, heart, hospital, supplemental disability and accident coverages. The Supplemental & Group Benefits segment represented 12% of 2021 total revenues and contributed $46.0 million to 2021 core earnings.

Supplemental & Group Benefits segment core earnings were up 10.0% with adjusted core earnings up 14.0%. Adjusted core earnings exclude the non-cash impact of amortization of intangible assets under purchase accounting that reduced core earnings by $3.9 million pretax vs. $3.0 million in the second quarter of 2021. Segment net investment income rose 50.0%, largely due to the addition of the Madison National portfolio in 2022.

The pre-tax profit margin reflected the addition of the newly acquired employer-sponsored products. Year-to-date benefit ratios for the voluntary and employer-sponsored products lines are near longer-term targets, despite expected quarterly fluctuations due to seasonality and other factors.

Total sales for the segment were $3.5 million. Sales of voluntary products were $2.2 million, a 83.3% increase over prior year, with persistency remaining very strong at 92.0%. Sales of employer-sponsored products added another $1.3 million, in line with management’s expectations.

Consolidated Results

Horace Mann’s investment strategy is primarily focused on generating income to support product liabilities, and balances principal protection and risk. Total net investment income includes net investment income on the investment portfolio managed by Horace Mann, as well as accreted investment income on the deposit asset on reinsurance related to the company’s reinsurance of policy liabilities related to legacy individual annuities written in 2002 or earlier.

Net investment income of $105 million on track to full-year guidance
(All comparisons vs. same period in 2021, unless noted otherwise)

Total net investment income was down $4.0 million. Net investment income on the managed portfolio was down $4.7 million as returns on the limited partnership portfolio, while still elevated over historical levels, are lower than the outsized returns last year. Net investment income benefited from yield expansion in the core fixed income portfolio and higher balances in both the commercial mortgage loan and limited partnership portfolios. The company’s fixed maturity securities portfolio is in a net unrealized investment loss position of $358.5 million pretax at June 30, 2022, primarily due to the rising interest rate environment.

Adjusted book value per share* flat year over year

At June 30, 2022, shareholders’ equity was $1.26 billion, or $30.59 per share, as higher interest rates resulted in net unrealized investment losses on fixed maturity securities. Excluding the unrealized losses, shareholders’ equity was $1.48 billion, or $35.94 per share*. During the second quarter, Horace Mann repurchased 315,625 shares of common stock at an average price of $37.40. As of June 30, 2022, $1.3 million remained authorized for future share repurchases under the share repurchase program authorized in 2015, and $50.0 million remained open under the share repurchase program authorized in 2022.

At June 30, 2022, total debt was $497.8 million, with $249.0 million outstanding on the company’s line of credit. The ratio of debt-to-capital excluding net unrealized investment gains/losses* was 25.2% at June 30, 2022, which aligns with levels appropriate for the company’s current financial strength ratings.

Segment outlook for 2022

Horace Mann’s expectation for 2022 core EPS is now $2.15 to $2.35. As previously announced, total net investment income from the managed portfolio for 2022 is expected to be at the low end of the guided range of $310 million to $320 million. This largely reflects net investment income on the core portfolio at the low end of expectations due to lower portfolio balances resulting from elevated catastrophe losses. Due to equity market declines, returns on limited partnership funds are now expected to be below historical averages for the second half of the year.

Results for each segment will reflect different considerations:

• Property & Casualty segment 2022 core earnings expected to be in the range of $10 million to $14 million, reflecting first-half results: The full-year 2022 guidance reflects the company’s assumption that catastrophe losses in the second half of the year will contribute between $20 million and $22 million, pretax, unchanged from previous guidance and in line with the 10-year average for second-half catastrophe losses.

• Life & Retirement segment 2022 core earnings expected to be in the range of $56 million to $59 million, reflecting first-half results: The full-year net investment spread now expected to be slightly below the 2021 level of 290 due to the revised outlook for net investment income.

• Supplemental & Group Benefits segment 2022 core earnings expected to be at the low end of the guided range of $47 million to $50 million: Expectations for full-year 2022 benefit ratios continue to be about 35% for voluntary products and about 50% for employer-sponsored products.

Quarterly webcast

Horace Mann’s senior management will discuss the company’s second-quarter financial results with investors on August 5, 2022 at 11:00 a.m. Eastern Time. The conference call will be webcast live at investors.horacemann.com and archived later in the day for replay.

About Horace Mann

Horace Mann Educators Corporation (NYSE: HMN) is the largest financial services company focused on helping America’s educators and others who serve the community achieve lifelong financial success. The company offers individual and group insurance and financial solutions tailored to the needs of the educational community. Founded by Educators for Educators^® in 1945, Horace Mann is headquartered in Springfield, Illinois. For more information, visit horacemann.com.

Safe Harbor Statement and Non-GAAP Measures

Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the company’s past and future filings and reports filed with the Securities and Exchange Commission (SEC) for information concerning important factors that could cause actual results to differ materially from those in forward-looking statements. Information contained in this news release include measures which are based on methodologies other than accounting principles generally accepted in the United States of America (GAAP). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the Appendix to the Investor Supplement and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to the company’s SEC filings.

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